Entrepreneurial competencies and the performance of
small and medium enterprises: an investigation through a framework of
competitiveness.

Abstract:

As an attempt to investigate the relationships between
entrepreneurial characteristics and firm performance, we operationalized
a theoretical framework of the competitiveness of small and medium-sized
enterprises (SMEs) and empirically tested the four hypotheses derived
from it. The framework links together entrepreneurial competencies and
SME performance with two further constructs: competitive scope and
organizational capabilities. The empirical study consisted of a stage of
instrument development specific to the research context, as well as a
stage of hypothesis testing. The results of hypothesis testing,
involving a sample of 153 owner/managers of SMEs, provided evidence for
the direct and indirect contributions of the entrepreneur's
opportunity, relationship, innovative, human and strategic competencies
in affecting the long-term performance of an SME via competitive scope
and organizational capabilities. This initial success, with the
validated survey instrument of entrepreneurial competencies, may serve
as the ground for further research in this area.

Name: Journal of Small Business and Entrepreneurship Publisher: Canadian Council for Small Business and Entrepreneurship Audience: Academic Format: Magazine/Journal Subject: Business, general Copyright: COPYRIGHT 2008 Canadian Council for Small Business and Entrepreneurship ISSN:0827-6331

Entrepreneurship, as exemplified by the characteristics of the
entrepreneur, is considered to be central to the determinants of SME
performance by some researchers (Erikson, 2002; O'Farrell and
Hitchens, 1988; Roper, 1998). Such a claim was particularly popular
among studies of the entrepreneurial firm, in which the entrepreneur
plays a founding and dominant role in the development of the business
(Daily et al., 2002; Goedhuys and Sleuwaegen, 2000; Glancey, 1998).
Researchers have attempted to investigate the various entrepreneurial
characteristics affecting the performance of SMEs, including the
entrepreneur's background and demographic characteristics like
education, age, gender and ethnic origin (Changanti and Parasuraman,
1996; Cooper, Dunkelberg and Woo, 1988; Honjo, 2004; Robb, 2002),
psychological and behavioural characteristics (Barkham, 1994; Begley and
Boyd, 1987; Kotey and Meredith, 1997; Sadler-Smith et al., 2003), and
factors of social and human capital (Batjargal, 2005; Dyke, Fischer and
Rueber, 1992; Haber and Reicheil, 2007; Lerner, Brush and Hisrich, 1997;
Aldrich and Zimmer, 1986; Johannisson, 1993). More importantly,
contingency factors of contextual, organizational and strategic natures
are of particular importance in determining a firm's performance
(Chandler and Hanks, 1994a; Chaston, 1997; Ensley, Pearce and Hmieleski,
2006; Lumpkin and Dess, 1996; Roper, 1998).

However, studies on the relationship between these entrepreneurial
characteristics and firm performance have produced mixed and
inconsistent findings (Chandler and Hanks, 1994a; Cooper, 1993; Fenwick
and Strombom, 1998; Reuber and Fisher, 1994). Possible explanations for
these inconclusive results are that our ability to predict a firm's
success using entrepreneurial characteristics is limited by the
instability of firm performance, the importance to an entrepreneur of
non-economic goals, and the stochastic nature of the process (Cooper,
1993). The lack of formal structural frameworks (Roper, 1998) and of a
comprehensive theory of SME development (Gibbs and Davies, 1991) are
also problems.

Therefore, further research relating entrepreneurial
characteristics and SME performance must take into account, first, a
more fully developed theoretical framework; second, contingency
relationships on different conditions and interactions; third,
characteristics that deserve more attention even if they may be less
easily operationalized; and fourth, the performance measures chosen, and
the use of multiple performance indicators (Cooper and Gascon, 1992;
Murphy, Trailer and Hill, 1996).

In response to this, Man, Lau and Chan (2002) have developed a
theoretical framework making use of the concept of firm competitiveness
for SMEs and the competency approach to study entrepreneurial
characteristics. This framework focuses centrally on the role of
entrepreneur in determining the firm's performance. It is readily
applicable to firms that are smaller in size and dominated by the
entrepreneur. By using this framework, we have conducted an empirical
study on the relationship between entrepreneurial competencies and the
performance of SMEs. In this paper, we report on the results of this
study. The implications, contributions and limitations of this study, as
well as directions for further research, will also be discussed.

Theoretical Framework

The framework of Man, Lau and Chan (2002) is founded upon a
multi-dimensional conceptualization of the competitiveness of SMEs,
including the performance dimension, potential dimension and process
dimension, developed from earlier studies of competitiveness (Oral,
1986; Feurer and Chaharbaghi, 1994; Buckley, Pass and Prescott, 1988;
World Competitiveness Report, 1993). In particular, the influence of the
entrepreneur is considered as critical and this is addressed through the
competency approach.

Entrepreneurial competencies are related to managerial
competencies, articulated in the works of Boyatzis (1982). The
competency approach has become an increasingly popular means of studying
entrepreneurial characteristics (For example, Baum, 1994; Bird, 1995;
Baron and Markman, 2003; Chandler and Jansen, 1992; Lau, Chan and Man,
1999; Martin and Staines, 1994; McGregor et al., 2000;
Schmitt-Rodermund, 2004). According to Bird (1995), competencies are
seen as behavioural and observable, and therefore are more closely
linked to performance than are other entrepreneurial characteristics
such as personality traits, intentions or motivations (Herron and
Robinson, 1993; Gartner and Starr, 1993). Moreover, as with attitudes
(Robinson et al., 1991), competencies are changeable and so the
development of entrepreneurship becomes more feasible. In Man, Lau and
Chan (2002), six major areas of entrepreneurial competencies are
categorized as relating to an SME context, including opportunity,
relationship, conceptual, organizing, strategic, and commitment
competencies. They are supposed to play different roles in affecting an
SME's performance with their direct and indirect effects.

In fact, central to the framework are the relationships between
these entrepreneurial competencies and other constructs of
competitiveness, including competitive scope, organizational
capabilities and the performance of the firm, which together address
different dimensions of SME competitiveness. These relationships are
conceptualized as three principal "entrepreneurial tasks,"
including (1) forming the competitive scope of the firm; (2) creating
the organizational capabilities; and (3) setting goals and taking
action. In other words, by making appropriate use of his or her
competencies, an entrepreneur can perceive a widened competitive scope
such as more opportunities for innovation, business growth, and the
provision of new services or products. From available resources, he or
she can also develop better organizational capabilities such as the
firm's innovative capability, cost-saving ability, quality and
flexibility. Finally, he or she can plan and work towards a firm's
long-term performance, along with the available competitive scope and
organizational capabilities. These relationships are addressed through
the following broad-based hypotheses:

Hypothesis 1: The opportunity, relationship, and conceptual
competencies of the entrepreneur are positively related to the
competitive scope of an SME.

Hypothesis 2: The organising, relationship and conceptual
competencies of the entrepreneur are positively related to the
organizational capabilities of an SME.

Hypothesis 3a: The strategic and commitment competencies of the
entrepreneur are positively related to the long-term performance of an
SME. This relationship is positively moderated by the competitive scope
of the firm.

Hypothesis 3b: The strategic and commitment competencies of the
entrepreneur are positively related to the long-term performance of an
SME. This relationship is positively moderated by the organizational
capabilities of the firm.

Hypotheses 3a and 3b address the interactions of entrepreneurial
competencies separately with competitive scope and organizational
capabilities. By taking a more contingent or configurational perspective
towards a firm's performance between entrepreneurial competencies,
competitive scope, and organizational capabilities (Lipparinni and
Sobrero 1994; Dess, Lumpkin, and Covin 1997; Wiklund and Shepherd 2005),
three-way interaction between these three kinds of variables may also be
possible. Therefore, Hypothesis 4, as an alternative hypothesis to H3a
and H3b, is also proposed:

Hypothesis 4: Strategic and commitment competencies, competitive
scope, and organizational capabilities will positively influence the
performance of an SME through their interactive effect.

The main purpose of this study, therefore, is to test the above
hypotheses derived from the model of Man, Lau and Chan (2002). We shall
describe and report the empirical study to achieve this purpose in the
following sections.

Overall Research Design

In order to successfully test the hypotheses, it is first necessary
to operationalize the concept of SME competitiveness with an instrument
tailored more specifically for measuring different dimensions of SME
competitiveness, particularly the aspect of entrepreneurial
competencies. As a result, the subsequent hypothesis testing could have
a higher level of validity.

Therefore, the empirical part of this study was designed as having
two stages--instrument development and hypothesis testing. The stage of
instrument development involved a qualitative study in the form of
behavioural event interviews (McClelland, 1987; Spencer and Spencer,
1993), an intensive effort for modifying existing instrument using of
qualitative data collected, as well as a pilot study of the preliminary
instrument.

With this instrument, we were able to test the hypotheses about the
relationships between different entrepreneurial competencies and the
other constructs in the framework of SME competitiveness, as designated
above. This part was conducted using a sample of SME owner/managers in
the services sector in Hong Kong.

Stage I: Development of the Survey Instrument

The main focus of developing the survey instrument was on the
measures of entrepreneurial competencies. While some existing
instruments like those of Chandler and Jansen (1992) and Baum (1994) are
currently available to measure entrepreneurial competencies, they did
not fully meet the needs of this study. For example, the instrument by
Chandler and Jansen (1992) included three distinctive categories of
entrepreneurial, managerial, and technical competencies. Baum's
(1994) measurement of competencies covered a range of instruments
measuring traits, skills, experience and knowledge. While they were
useful for this study, they did not address all the competencies
identified in the qualitative study, and the varied forms of measurement
used may cause difficulties for the respondents to answer the
questionnaire. Therefore, a survey instrument taking a behavioural
perspective and meeting the requirements of this study is necessary. The
underlying approach in developing this survey instrument is to modify
and update the existing instruments with reference to the results from
the qualitative analysis so as to make them applicable to measuring the
entrepreneurial competencies of the research context. The preliminary
instrument was then subject to a pilot test on a small sample.

Qualitative Study: Behavioural Event Interviews

A qualitative study was first conducted with reference to the
theoretical framework and the context of SMEs in Hong Kong, with the
purposes of: 1) identifying entrepreneurial competencies specific to the
research context, 2) exploring any new competencies that have not been
identified in prior studies, and 3) generating a referencing pool of
items (DeVillis, 1991) in developing a survey instrument to measure
entrepreneurial competencies.

The qualitative data were collected from a sample of 19 successful
owner/managers contacted through referral, using a modified form of the
behavioural event interview (McClelland, 1987; Spencer and Spencer,
1993). This approach has been successfully applied to the study of
entrepreneurial competencies in different contexts (Snell and Lau, 1994;
Hunt, 1998; Martin and Staines, 1994; Lau, Chan and Man, 1999; Adam and
Chell, 1993). Basically, the interviewees were asked to describe the
process of business development since starting up, and their actions and
behaviour in various incidents during the development of the business.
In particular, in accordance with the suggestions of Bird (1995) who
favoured the use of more rigorous and theory-based qualitative analysis
instead of exploratory-qualitative approaches in studying
entrepreneurial competencies, the competitiveness framework was
explicitly applied in matching the behaviours identified with the
prescribed competency areas for different entrepreneurial tasks. This
analysis has led to a detailed coding of 192 competencies in 44 clusters
in the six areas of opportunity, relationship, conceptual, organizing,
strategic, and commitment competencies as in the original framework, as
well as in two new competencies that do not fit into these six
prescribed competency areas but seem to play supporting roles to other
competencies. They were named learning competencies and personal
strength competencies. As a result, the original theoretical framework
has been modified. Therefore, the focus can be placed on competencies
directly relevant to performance in the next stage, and on those playing
an indirect or supporting role to other competencies in further studies.

These competency clusters and behavioural elements were further
turned into corresponding constructs and components. This was
accomplished through a detailed reviewing procedure of the competencies
which led to similar competencies being combined into higher-level
competencies. The result was a grouping of 70 competency components
under the six constructs of opportunity, relationship, conceptual,
organising, strategic, and commitment, and the two supporting competency
constructs of learning and personal strength.

Development of Preliminary Instrument

These competency constructs and their components were then used in
the subsequent step of selecting and developing suitable measures. Those
that were concise, with higher reliability and requiring fewer
modifications, were preferred. Apart from these considerations, the
measures were expected to be behavioural in nature and reflect the
direction of the effects of the hypothesized relationships. Based on
these criteria, the measures were selected and modified from Chandler
and Jansen (1992) (for opportunity, organizing and commitment
competencies), Roemer (1996) (for relationship competencies), Evers and
Rush (1996) (for personal strength competencies), Quinn et al. (1990)
(for conceptual and personal strength competencies), William (1996) (for
personal strength competencies), the Learning Skills Profiles (1993)
(for strategic competencies), and the Leadership Competency Inventory
(1996) (for strategic competencies). These have resulted in a 68item
instrument measuring various entrepreneurial competencies. These
original measurements are all multi-item with a reported coefficient
alpha ranging from 0.7 to 0.82, except for the learning competencies,
for which no concise measures matching the qualitative results are
available. Thus, a simple six-item measure based on the qualitative
results was developed.

An example of this developmental process can be demonstrated with
the construct of "opportunity competencies," in which six key
components of competencies were identified from the qualitative stage.
These six components were compared with the existing four-item scale by
Chandler and Jansen (1992) and found to be largely comparable. The
exception was one dimension on "assessing potential business
opportunity thoroughly," which was missing in Chandler and
Jansen's (1992) scale, and added to the revised scale.

To enhance the validity of the preliminary instrument for measuring
entrepreneurial competencies, five academics experienced in the
development of scales were invited to evaluate its content validity.
Based on the comments, some items were added, changed or removed,
resulting in a modified version with 68 items.

We then combined them with existing instruments for measuring
competitive scope, organizational capabilities, and firm performance.
Competitive scope measures the perceived environment facing the firm
from the point of view of the entrepreneur. They are adopted and
modified from Zahra's (1993) and Miller's (1988) instruments
for measuring opportunities for innovations, perceived industry growth,
importance of new product, and market heterogeneity. Organisational
capabilities comprise a firm's innovative ability, quality, cost
effectiveness and flexibility, modified from Chandler and Hanks'
(1994b) and Covin and Slevin's (1988) instruments. The reported
coefficient alpha for the original measures for these scales ranges from
0.76 to 0.89.

To measure SME performance, the use of scales is a better
alternative than using actual figures due to the unwillingness of the
SME owner/managers to disclose these sensitive figures. Under the
framework of SME competitiveness, measurements for performance were
considered from three perspectives, including investment efficiency,
business growth, and relative performance. In this study, investment
efficiency was represented by return on shareholder equity, gross profit
margin, net profit from operations, profit to sales ratio, and return on
investment. This was extracted from Grupta and Govindarajan's
(1984) instrument, which was frequently cited, adopted and modified by
others in measuring SME performance (for example, Covin and Slevin 1989
and 1990; Naman and Slevin 1993). The reported coefficient alpha was as
high as 0.88 (Covin and Slevin 1989). On the other hand, the measures
for business growth and relative performance were modified mainly from
that of Chandler and Hanks' (1993) instruments which had a
coefficient alpha of 0.72. These three variables, investment efficiency,
business growth, and relative performance, together shall reflect the
concepts of an SME's competitiveness performance in a more complete
picture as they represent performance at present, in the future and in
comparison with its competitors. There are also other variables for
collecting personal and firm data.

Pilot Testing

The resulting preliminary version of the survey questionnaire,
translated into Chinese and then back-translated into English to ensure
consistency, was applied in a pilot test on a sample of 55
owner/managers and senior business executives in SMEs in order to
evaluate the performance of the items in the instrument.

In the data collected from the pilot test, some items were
rephrased if their wording was not sufficiently strong to differentiate
between good and poor ratings (DeVellis, 1991). Some were also selected
for removal if they had (1) a low item-scale correlation, given an
acceptable level of coefficient alpha (close to 0.7) could be
maintained, (2) serious mis-loading or cross-loading into other
variables, or (3) low loading to the original variable. A final version
of the survey questionnaire was then produced, with 53 items measuring
the eight competency constructs, 12 items for competitive scope, 20
items for organizational capabilities, 14 items for firm performance,
and other items for the respondents' personal and firm data. For
the purposes of hypothesis testing in this study, the measures for
competitive scope and organisational capabilities were treated as
composite scales. The items for measuring entrepreneurial competencies
are shown in Appendix 1.

Stage Two: Hypothesis Testing

Sample and Data Collection

The sample used for hypothesis testing was 153 owner/managers of
the SMEs, who were drawn from the services sector in Hong Kong through a
postal survey. The surveyed firms were randomly drawn from latest
available listings of SMEs in directories like the Dun and
Bradstreet's Market Guide and the Hong Kong IT Directory during the
time of the survey, provided that they met the following criteria:

1. The contact person listed in the directories is the
owner/manager of the firm;

2. The firm has 50 or fewer employees (which met the definition of
SMEs in the services sector in Hong Kong); and

3. The firm has been in operation for at least three years.

Although the response rate of the postal survey is not particularly
high (around 7%), it is comparable to the reported response rates from
6.8% to 11.6% in a previous study of the response behaviour on postal
surveys for Chinese owner/managers in Hong Kong (Siu, 1996). Siu's
study employed a four-page questionnaire, as did our study.
Nevertheless, we have also made a conscientious effort to ensure the
data collected was representative: first, a comparison was made between
the earlier batch (two-thirds of the data) and the later batch
(one-third of the data) of returned questionnaires--that is, one
received before and one after a reminder card had been sent after nine
days, by using a ttest on the main variables and a Kolmogorov-Smirnov
test and t-test on the demographic and firm characteristics. These tests
did not reveal significant differences between the two batches of
respondents. Therefore, it could be assumed that the two batches were
drawn from the same population. Moreover, a comparison was made on the
key characteristics between the sample and the general population of
SMEs in Hong Kong, based on the available and comparable data from the
Census and Statistics Department in Hong Kong as follows.

As shown in Table 1, those key characteristics of the sample were
comparable to that in the population, implying that there should not be
a significant non-response bias in the sample used and they should be a
representative sample of the population.

Analysis

Exploratory factor analyses were first conducted to empirically
determine the number of factors within each competency sub-construct,
together with reliability and correlational analyses.

In the testing of the hypotheses, a hierarchical ordinary least
squares regression analysis was used. The principal component factors of
the areas of competency, generated from the previous factor analyses,
were used as the independent variables instead of the original composite
variables, to avoid the potential problems of multicollinearity arising
from the high level of correlations between these competency areas.
Moreover, as these principal components are standardized, problems of
distortions with the interactive terms in H3a, H3b and H4 were minimized
(Aiken and West, 1991). Standardized scores for competitive scope,
organizational capabilities, and performance variables were also used so
that the variables would be more comparable in scale to assist in the
calculations of interactive effects in H3a, H3b and H4.

In testing H1 and H2, the composite measures of competitive scope
and organizational capabilities were used respectively as the dependent
variables. In testing H3a, H3b and H4, firm performance was regressed by
using the three performance criteria separately, namely, investment
efficiency, business growth, and relative performance.

In testing H4, the three-way interactive effects between
competitive scope, organizational capabilities and entrepreneurial
competencies were tested by using two different types of interactive
terms among these variables: (1) the full multiplicative terms among
competitive scope, organizational capabilities and entrepreneurial
competencies, and (2) the additive-multiplicative terms between a
combined measure of competitive scope and organizational capabilities
with entrepreneurial competencies. This is, in effect, a less stringent
interpretation of interactions than the full multiplicative
interactions.

Some control variables were also introduced. For Hypotheses 1 and
2, the entrepreneur's age (current age and start-up age) is
controlled because an entrepreneur can become more competent (Brockhaus
and Horwitz, 1986) or, on the contrary, less entrepreneurial (Begley and
Boyd, 1985) as he or she gets older. For Hypotheses 3a, 3b and 4, in
addition to the entrepreneur's age, it is also necessary to
consider the firm's age and size, industry sectors and stages of
business development, all of which are related to a firm's
performance.

Results

For these competency items, as there are only 153 cases in the
sample, which is insufficiently large for conducting a single factor
analysis, three separate exploratory factor analyses were conducted
using varimax rotation with Kaizer normalization and principal component
analysis. Together, the result was a clearer separation of factors and
an ability to account for the maximum portion of the variance
represented in the original set of variables (Hair et al., 1998). In all
of the three factor analyses, factors were extracted when the
eigenvalues were greater than one. The factors extracted in all of the
three analyses explained over 70% of the total variance, as shown in
Appendix 2. While there were some cross-loadings in other competency
areas, in general the loading patterns corresponded with the
predetermined sets of competency sub-constructs, except that the
conceptual competencies were found to be better separated under two
competency areas: analytical competencies and innovative competencies.
Organizing competencies were better separated into two competency
areas--operational competencies and human competencies-to better reflect
the organizing competencies in business operations and in people
management. In the end, a total of 10 factors were generated from the
factor analysis for use in the subsequent analyses.

The reported Cronbach's Alpha for all multi-item variables
used in the study ranged from 0.78 to 0.94, all of which are higher than
the acceptable value of 0.7 suggested by Nunnally (1978). The
correlations of the dependent and independent variables are shown in
Table 2.

Table 2 shows a significant and substantial level of correlations
among variables of the same construct. For variables in different
constructs, the correlations are moderate. Such a pattern can be seen as
evidence for the convergent validity for variables within a construct
and the divergent validity for variables outside a construct. The
significant correlations between the supporting competencies of learning
and personal strength with the main competency areas may provide some
indications of the relationships between these sets of competency
variables. However, for the sub-constructs of entrepreneurial
competencies, the significant correlations may create potential problems
of multicollinearity when used as dependent variables in hypothesis
testing. To solve this problem, the standardized principal components of
these competency sub-constructs were used in multiple regressions when
the hypotheses were tested, instead of the original numeric values on
the ratings. The results of the tests of the hypotheses are shown in
Table 3.

The results from the test of H1 show that there is an overall
significant equation with the final [R.sup.2] of 0.210 on the final
model (adjusted [R.sup.2] = 0.175). In particular, significant and
positive effects were found for relationship, innovative, and
opportunity competencies on a competitive scope. Therefore, the extent
of the competitive scope as perceived by the entrepreneur is positively
related to how competent he or she is in building relationships,
innovating and identifying opportunities in the external environment. On
the other hand, the insignificance of analytical competencies may imply
that as a kind of more abstract conceptual ability, they are not as
readily applicable to the conceptualizing of the external environment.
The small change in R2 of 0.045 when introducing the control variables
of current age and start-up stage of the entrepreneur into the equation
indicates that the main effect from the independent variables
contributed a considerable proportion of the R2 in the equation.

The results from testing H2 have shown an overall significant model
with the final R2 = 0.230 (adjusted [R.sup.2] = 0.189). Significant and
positive effects of relationship, innovative, and human competencies
were also found on the dependent variables of the organizational
capabilities of the firm. Therefore, the creation of organizational
capabilities is positively related to the entrepreneur's
competencies in manipulating various resources through their
relationship, innovative and human competencies. However, no significant
impact was found for operational competencies and analytical
competencies, although positive signs were noted. The lack of
significance for operational competencies may be explained by the
assumption that the formation of organizational capabilities relies more
on the organization of people, as demonstrated in the significance of
human competencies, rather than on the organization of physical
resources. For analytical competencies, its insignificant effects may
also be related to the fact that it is a more abstract variable as in
testing H1, and hence the respondents may find it more difficult to
relate it to actual conditions. Again, the small change in R2 of 0.05
for introducing the control variables of current age and start-up stage
of the entrepreneur into the equation indicates that the main effect
from the independent variables played a significant role in contributing
to the R2 of the equation.

Also from Table 3, the results from testing H3a and H3b have
indicated that there are overall significant models with respect to all
three performance criteria. The significant and positive two-way
interactive effects of the competitive scope and the organizational
capabilities on strategic competencies were demonstrated when investment
efficiency was used as the criterion of firm performance, as shown in
the values of the standardised coefficients on these interactive terms.
On the other hand, no such significant effects were found for
competitive scope and organizational capabilities on commitment
competencies, which instead tend to have a direct effect on firm
performance across various indicators.

Apart from their interactive effects, both competitive scope and
organizational capabilities do not have a significant direct effect on
firm performance, which may again be evidence of their role as
moderators in the model. However, the two-way interactive effects for
both competitive scope and organizational capabilities were not apparent
when business growth and relative performance were used as the
performance indicators. Apossible explanation is that the performance
consequences of the interactions of strategic competencies with
competitive scope and organizational capabilities are better reflected
in realized and tangible gains, as in investment efficiency. As business
growth and relative performance are less directly related, they are less
tangible for SMEs. However, it is worth paying attention to the fact
that the changes in R2 when introducing the independent variables and
moderated terms into the regression equations were noticeable but not so
substantial. This would mean that the control variables also made
significant impacts on firm performance.

In testing H4, the results also demonstrated overall significant
models with respect to all three performance criteria. As with H3a and
H3b, commitment competencies have a direct and positive relationship
with firm performance. For strategic competencies, a significant and
positive additive-interactive effect with competitive scope and
organizational capabilities on investment efficiency was noted; however,
no significant three-way full interactive effect on firm performance was
demonstrated. The direct effect of strategic competencies was also
shown, but under the criteria of investment efficiency only. However,
the impact of strategic competencies on investment efficiency was not as
strong as its interactive effect, as shown by the comparison between
their standardized coefficients.

Also, as with H3a and H3b, these interactive effects were
significant only when investment efficiency was used as the performance
indicator, but not when growth and relative performance were used. Also,
the moderators of competitive scope and organizational capabilities did
not have a significant direct effect on firm performance. Rather, they
tend to play a positively moderating role in the relationship between
strategic competencies and firm performance, as in H3a and H3b. Again,
there have been some noticeable changes in [R.sup.2] when introducing
the independent variables and interactive terms into the regression
equations.

From the results of testing various hypotheses, it was found that
the current age of the entrepreneurs tends to have a negative impact on
the hypothesized relationships, whereas their age when starting up their
business has a positive impact on H1 only. These findings give
supporting evidence of the need to control for the effects of the age
factor in the hypothesized relationships, as entrepreneurs tend to
become less entrepreneurial with age (Begley and Boyd, 1985). On the
other hand, the results also show that firm size has had a positive and
strong impact on firm performance, and various stages of business
development are found to have different levels of positive impact on the
growth of the business, with a firm in the mature stage being the
strongest, followed by the growth stage and the stage of decline.
Therefore, controlling for these firm factors would yield a more
accurate account of the hypothesized relationships between
entrepreneurial competencies and other constructs. From the results of
the changes in R2 in Table 2, the independent variables in H1 and H2
have considerably higher impacts than the control variables on the
respective dependent variables (competitive scope and organisational
capabilities), whereas in H3a, H3b and H4, the changes which resulted
from the independent variables were also noticeable but less
substantial.

Taking the above factors into consideration, it was shown that, in
general, H1 and H2 are partially supported with empirical evidence, with
opportunity, relationship, innovation and human competencies having
significant and considerable impacts on forming the competitive scope
and creating the organizational capabilities of a firm respectively. On
the other hand, H3a and H3b are also partially supported, with evidence
for the positive impacts of the higher levels of competitive scope and
organizational capabilities on the entrepreneurs' strategic actions
that would, in turn, affect the long-term performance of their firms.
However, it was necessary to pay attention to factors other than those.

There is also evidence for at least partial support for
additive-interactive effects among competitive scope, organizational
capabilities and strategic competencies on the performance of a firm. As
in H4, the results can be interpreted as indicating that an
entrepreneur's strategic competencies can be more effective through
the presence of a favourable competitive scope, as perceived by the
entrepreneur, and an abundant supply of organizational capabilities; but
that there is no need for a "full alignment" among strategic
competencies, competitive scope and organizational capabilities, which
may be an overly stringent condition that few SMEs can achieve given the
limited capabilities they possess and the extent of the competitive
scope they face.

On the other hand, compared with the results from testing H3a and
H3b using investment efficiency as the criterion, H4 has provided a
higher level of adjusted R2, meaning that it can explain more variances
in investment efficiency than H3a and H3b. It has also resulted in a
higher standardized coefficient in the interactive term with competitive
scope and organizational capabilities than in the separated two-way
interactive effects of strategic competencies with these two variables
as in H3a and H3b. This again provides evidence for the need of the
entrepreneur to consider the external environment and the firm's
capabilities simultaneously in order to achieve better firm performance.

Discussion and Conclusion

As an effort to investigate the relationship between
individual-level entrepreneurial characteristics and firm-level
performance, we have made use of a theoretical framework for SME
competitiveness incorporating the competency approach for studying
entrepreneurial competencies. This framework has also allowed us to
study interactive relationships, and provided guidelines for the choice
and operationization of the variables involved, as suggested by Cooper
and Gascon (1992) and Murphy, Trailer and Hill (1996), which are
necessary for further investigations of the relationships between
entrepreneurial characteristics and firm-level performance. We were able
to achieve an initial success, with some positive results from testing
the hypotheses which provided supporting evidence of the direct or
indirect effects of different competencies on a firm's long-term
performance. These findings correspond to earlier research efforts
demonstrating an entrepreneur's ability to become alert to and
interpret environmental conditions (Keats and Bracker, 1987; Herron and
Robinson, 1993; Kristiansen, 2002; Minniti, 2004), to gather and use
various internal and external resources to the advantage of the firm (de
Carolis and Saparito, 2006; Gartner and Starr, 1993; Ostgaard and
Birley, 1994), and to plan for the long-term success of the firm (Harris
and Emmanuel, 1999; Ibrahim, 1991; Kargar, 1996; Kisfalvi, 2002).

It is also worth taking note of the supportive evidence for the
interactive effects, rather than the direct effects of competitive scope
and organizational capabilities on firm performance, which give
additional evidence for the theoretical framework. These results have
also suggested that while differences in the perception of the
environment or the firm's resources play a role in forming the
competitive scope and creating organizational capabilities, they cannot
be developed into competitive scope and organizational capabilities
without the respective entrepreneurial competencies including
relationship, innovative, opportunity and human competencies. Also, the
strategic competencies of the entrepreneur to make use of the
competitive scope and the organizational capabilities shall contribute
to a firm's successful performance over the long term.

As compared with previous studies on the relationship between
entrepreneurial characteristics and SME performance, this study has
provided an alternative means of approaching this issue by making use of
a theoretical framework that links other constructs (organizational
capabilities and competitive scope) with firm performance. This study
also provides some empirical evidence for the role of the entrepreneur
in determining the performance of an SME. Nevertheless, when evaluating
the contributions of entrepreneurial competencies in firm performance,
it is also important to pay attention to other factors such as firm size
and stages of industry development. These influences may be particularly
significant, given the small size of SMEs in the sample used, and the
economic downturn of Hong Kong in the last few years which may have put
these SMEs in a relatively disadvantageous position. Hence factors other
than individual competencies, like the stages of industry development,
may contribute even more towards firm performance in this context. We
therefore recognize the need for further research work in this area.

On the other hand, a supporting role for learning competencies and
personal strength competency was also observed, with empirical evidence
from the qualitative analysis and the correlation analysis. However,
contrary to our expectation, commitment competencies seem to exert a
direct effect on firm performance rather than a moderating/interactive
effect, as originally hypothesized. This result may indicate that the
use of commitment competencies is not limited by the external
environment or by the firm's capabilities.

More significantly, a unified survey instrument for measuring ten
types of entrepreneurial competencies from a behavioural perspective has
been developed. It was developed from modifying and expanding existing
instruments for measuring entrepreneurial competencies, such as those of
Chandler and Jansen (1992) and Quinn et al. (1990), using the results
from the qualitative analysis. This instrument has been
content-validated by an expert panel, construct-validated through
exploratory factor analysis and correlational analysis, and
criterion-validated by hypothesis testing. Moreover, the instrument has
shown a high level of reliability in the variables it contains.
Therefore, given further testing on larger samples, this survey
instrument should have a high potential contribution in the future
quantitative work on entrepreneurial competencies. For example, apart
from testing with firm performance, the instrument itself may serve to
identify the relative strengths of different entrepreneurial
competencies in distinctive dimensions to help both practicing and
potential entrepreneurs identify the competency areas in which they
require further training and development. In fact, the results imply
that training and developing competent entrepreneurs is as or more
important than simply providing more resources and a positive
environment. Moreover, distinguishing the roles of different
competencies on firm performance will allow a more focused approach to
be taken in providing training to entrepreneurs.

In conclusion, to address the relationship between entrepreneurial
competencies and SME performance, further research can be conducted for
testing the model of Man, Lau and Chan (2002) by using samples across
different industries and cultures. In addition, this will also help us
better understand how the requirements of different entrepreneurial
competencies vary across different industries and the influence of
socio-cultural contexts on the formation of entrepreneurial
competencies. Also, as entrepreneurial competencies are regarded as
higher-level characteristics closely linked to SME performance, it will
be of interest to investigate what entrepreneurial typologies will
emerge if they are used as the basis of classification. Moreover, by
classifying entrepreneurs into different categories, it is possible to
offer them more focused training and assistance.

Appendix 1:

Items Measuring Entrepreneurial Competencies

1. Identify goods or services customers want.

2. Perceive unmet consumer needs.

3. Actively look for products or services that provide real benefit
to customers.

4. Seize high-quality business opportunities.

5. Develop long-term trusting relationships with others.

6. Negotiate with others.

7. Interact with others.

8. Maintain a personal network of work contacts.

9. Understand what others mean by their words and actions.

10. Communicate with others effectively.

11. Apply ideas, issues, and observations to alternative contexts.

12. Integrate ideas, issues, and observations into more general
contexts.

13. Take reasonable job-related risks.

14. Monitor progress toward objectives in risky actions.

15. Look at old problems in new ways.

16. Explore new ideas.

17. Treat new problems as opportunities.

18. Plan the operations of the business.

19. Plan the organisation of different resources.

20. Keep the organization run smoothly.

21. Organize resources.

22. Coordinate tasks.

23. Supervise subordinates.

24. Lead subordinates.

25. Organize people.

26. Motivate people.

27. Delegate effectively.

28. Determine long-term issues, problems, or opportunities.

29. Aware of the projected directions of the industry and how
changes might impact the firm.

33. Assess and link short-term, day-to-day tasks in the context of
long-term direction.

34. Monitor progress toward strategic goals.

35. Evaluate results against strategic goals.

36. Determine strategic actions by weighing costs and benefits.

37. Dedicate to make the venture work whenever possible.

38. Refuse to let the venture fail whenever appropriate.

39. Possess an extremely strong internal drive.

40. Commit to long-term business goals.

41. Learn from a variety of means.

42. Learn proactively.

43. Learn as much as I can in my field.

44. Keep up to date in my field.

45. Apply learned skills and knowledge into actual practices.

46. Maintain a high energy level.

47. Motivate self to function at optimum level of performance.

48. Respond to constructive criticism.

49. Maintain a positive attitude.

50. Prioritize tasks to manage my time.

51. Identify my own strengths and weaknesses and match them with
opportunities and threats.

52. Manage my own career development.

53. Recognize and work on my own shortcomings.

Note: All items are anchored on a seven-point Likert scale seeking
the respondent's agreement on how competent they are as described
on in the items. Items 41 to 53 were related to two supporting
competencies of learning and personal strength which were not put into
hypothesis testing.

Acknowledgements

This study has been partially funded by the Central Research Grant
of the Hong Kong Polytechnic University under project number G-V502.

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